FOMC: Does Warsh Want to Change the Inflation Target?

July 29, 2026   Citadel called for a hike today, which is why they’re a tiny inconsequential shop HQ’d in Charlotte and why I run a $70B hedge fund from South Florida…

Markets were the most uncertain about today’s FOMC meeting in 30 years. Three members dissented and voted for a hike: Logan, Hammock, and Kashkari. This was the first time in 10 years that there were three dissents in the same direction.

I totally get why they wanted a hike. Since the last FOMC meeting, over 700k Americans stopped looking for work, NFP missed by 50%, the last two months of job gains were revised down by 129k, and monthly CPI was negative…classic conditions for a hike.

That being said, it’s impossible to ignore the three dissents. If the Fed ultimately hikes this year, I think it’s only because spending 5 years above 2% causes them to throw in the towel. They’ll push Jay$ under the bus and say, “We’re not hiking as much as we are reversing some of the mistakes under the last regime.”

I can’t believe I’m saying this, but Warsh is as bad at these Q&A’s as Yellen was. With apologies to Shakespeare, I couldn’t help but hear Stuart Scott as Warsh droned on and on, “Full of sound and fury, signifying nothing” (RIP king). This was the worst press conference by a Fed Chair I can recall. If a press conference could have a circular reference, this one had it. He sounded far more like a politician than a Fed Chair. For a guy that doesn’t want Fed officials to talk, he wouldn’t shut up.

The front end of the curve dropped about 5bps as the market lowered odds of a hike. The T10 is up 5bps, the T30 is up 13bps, hitting pre-GFC peaks.

I don’t know where to begin, so let me start with the single most important takeaway: Warsh’s view on inflation. Claude Sahm wrote last week that Warsh has very intentionally been using a phrase, “underlying inflation”, which is not a defined term.

When asked about this, Warsh said, “Let me give you the proper standard answer first.” He was very clearly saying he was going to first answer with what he felt obligated to say, but would follow up with his real answer. He said every January the Fed agrees on the definition of inflation, which has been PCE forever. He even half-joked, “That’s the answer and we’re sticking to it.” He didn’t get the laughs he expected.

He continued, “When we talk about measures and those measures as a function of those objectives, I’m looking at a broader set of inflation data than just PCE. I am looking at underlying inflation.”

I guaranfriggintee that his data task force is looking for a way to change the appropriate inflation metric(s) by the next January update, which in aggregate will measure “underlying inflation.” Powell changed the timeline for achieving 2% inflation, Warsh is changing the yardstick.

He will continue to pound the lectern and reiterate the FOMC’s commitment to 2% inflation, while simultaneously changing the measurement of that. It’s like bragging, “My kid is going to get straight As next semester” and then only signing them up for some Ohio State football classes.

Markets puked - that’s why the curve steepened so much. Markets interpret his comments as basically tolerating inflation. Markets are saying that actions are louder than words, “I don’t care that you say you are committed to a 2% inflation target if you don’t do anything about it.”

Other notables:

• Warsh suggested that markets have tightened financial conditions since the last meeting, “We haven’t done much in 42 days. The markets have done quite a bit.”
• Is he outsourcing tightening to the market? Is he providing forward guidance without forward guidance?
• He referenced Goodhart’s Law (when a measure becomes a target, it ceases to be a good measure) and the Lucas critique (historical data becomes unstable following a regime change) because who doesn’t love to kick those topics around at a party? But his point was that the Fed will be less dependent on economic models…so what exactly do they plan on using? Kalshi?
• When asked about the impact on today’s decision that the recent, cool CPI had: “Not much. We are not relying on any one piece of data as cover, or excuse, or validation. We are more interested in trends of data.”
• He was incredibly patronizing to one journalist who asked how he could claim to have no tolerance for inflation, but after two meetings his FOMC hasn’t done anything differently.

• • “What I hear from you is impatience. This is not an excuse, this is a fact. This FOMC has been in business for 8 weeks. The suggestion that we can do this with a magic wand is one I want to disabuse you of.”

• Similarly, a CNBC reporter ended a question with, “What are you waiting for?”
• “Believe it or not, this press conference isn’t all I’ve done today.”
• “I think there was a misimpression that central bankers set a 2% inflation target and could tolerate an inflation target somewhat higher. What I have heard over the last 8 weeks is no, we will deliver a 2% inflation rate.”
• “Did the Fed make an explicit change to monetary policy today? No. But I wouldn’t characterize that as the end of the story, but rather the beginning of the story.”

wtf

My Takeaways

• Warsh believes higher market rates and tighter financial conditions can substitute, to some extent, for rate hikes.
• Warsh will use Quantitative Tightening as a substitute for rate hikes.
• For someone that believes the Fed needs to regain credibility, he’s doing a terrible job.
• Somewhere, Jay$ is giggling. But only a little bit.